How Toyota Recovered from a
Major Fire in Less Than a Week

A factory supplying brake fluid proportioning ("P") valves to Toyota's 20 automobile plants in Japan had a major fire early Saturday February 1, 1997. Toyota's Japanese plants produce about 14,000 cars a day and were operating on Just-in-Time inventories of about 4 hours. The Wall Street Journal article below details the methods used to recover production in 5 days. A side note, the fire occurred on the weekend prior to the Tokyo Boat Show where they announced their entry into the boating industry. Here comes a real competitor!

Toyota Motor Shows Its Mettle
After Fire Destroys Parts Plant

KARIYA, Japan -- No one knows what sparked the fire that roared through
Aisin Seiki Co.'s Factory No. 1 here before dawn on Saturday, Feb. 1,
leveling the huge auto-parts plant. But one thing is clear: The
crisis-control efforts that followed it dramatically illustrate one reason
Toyota Motor Corp. is among the world's most admired and feared
manufacturers.

The fire incinerated the main source of a crucial brake valve that
Toyota buys from Aisin and uses in most of its cars. Most Toyota plants
kept only a four-hour supply of the $5 valve; without it, Toyota had to
shut down its 20 auto plants in Japan, which build 14,000 cars a day. Some
experts thought Toyota couldn't recover for weeks.

But five days after the fire, its car factories started up again. Only
recently have Toyota and its suppliers revealed how they did it.

Model of Cooperation

The secret lay in Toyota's close-knit family of parts suppliers. In the
corporate equivalent of an Amish barn-raising, suppliers and local
companies rushed to the rescue. Within hours, they had begun taking
blueprints for the valve, improvising tooling systems and setting up
makeshift production lines.

By the following Thursday, the 36 suppliers, aided by more than 150
other subcontractors, had nearly 50 separate lines producing small batches
of the brake valve. In one case, a sewing-machine maker that had never made
car parts spent about 500 man-hours refitting a milling machine to make
just 40 valves a day.

"Toyota's quick recovery," says Yoshio Yunokawa, general manager of
Toyoda Machine Works Ltd., a Toyota-group maker of machine tools and
steering systems, "is attributable to the power of the group, which handled
it without thinking about money or business contracts."

That is a common approach in Japan's keiretsu, the almost tribal groups
of companies that supply and support behemoths such as Toyota. Japanese
auto makers' blood pacts with their suppliers largely explain how they can
slash their costs to the bone and stay globally competitive.

No Foreign Help Required

And the fealty the parts makers paid to Toyota during its crisis helps
indicate why Japan's auto companies return the loyalty -- often to the
detriment of U.S. and other foreign parts makers seeking market share here.
Toyota and Aisin didn't bother to approach any foreign companies during the
crisis, a Toyota spokesman says, because "there were no foreign suppliers
in a position to help us."

Aisin (pronounced "eye-sheen") is an archetypal supplier in Toyota's
group. Founded during World War II to make aircraft engines, it is based in
Kariya, an industrial warren occupied by many other big Toyota suppliers.
Toyota holds 23% of Aisin's stock. Aisin's president is Kanshiro Toyoda,
scion of the Toyoda family that founded the auto maker.

Long a supplier of engine and brake parts, 80% of which it sells to
Toyota, Aisin has won almost all of Toyota's contracts for
brake-fluid-proportioning valves -- "P-valves" in industry parlance. The
fist-sized valves control pressure on rear brakes and help prevent
skidding.

For most parts, Toyota has at least two suppliers. But over the years,
it turned to Aisin to produce all but 1% of its P-valves because of Aisin's
high quality and low cost. The supplier shipped parts to Toyota plants
under a just-in-time inventory system: several times a day, just enough
valves for a few hours of production.

Calculated Risk

Depending on a single source and holding essentially no inventory is a
calculated risk, concedes Kiyoshi Kinoshita, Toyota's general manager of
production control. But it also is what keeps Toyota's production lean;
Aisin gets major economies of scale that it passes on to Toyota in lower
prices.

Toyota acknowledges that it didn't figure in the risk of fire. Aisin
executives speculate that sparks from a broken drill bit may have ignited
wooden platforms. Just after 4 that morning, flames swept through an air
duct and ignited the roof. Graveyard-shift workers escaped as 36 fire
engines arrived, mostly from nearby Toyota-group companies.

Even as the fire burned, Aisin officials organized a committee to assess
the damage, notify customers and labor unions and, following Japanese
custom, visit neighbors to apologize. A subcommittee ordered 320 cellular
phones, 230 extra phone lines and several dozen sleeping bags for
executives who were expected to live at headquarters in the coming
days.

At 8 a.m., Aisin asked Toyota to help. Kosuke Ikebuchi, a Toyota senior
managing director, was tracked down at a golf-course clubhouse; he left his
wife there and rushed to Toyota headquarters to help set up a "war room" to
direct the damage-control operation. Toyota quickly sent more than 400
engineers to Aisin. In reacting to such a crisis, Mr. Kinoshita says,
"we're like the U.S. military."

When the last embers died just before 9 a.m., the damage at Factory No.
1 began to grow clear -- along with an apparent Achilles' heel in Toyota's
lean corporate physique. Most of the factory's 506 highly specialized
machines, which make other brake parts as well as P-valves, were charred
and useless. Toyota estimated that more than two weeks would be needed just
to restore a few milling machines to partial production, and six months to
order new machines. That was too long: Auto plants were on overdrive to
meet strong domestic demand and serve the brisk-selling U.S. market.

Moreover, a Toyota shutdown would damage local economies. Firms
supplying the 20,000 parts in the average Toyota, along with hundreds of
businesses such as utilities and trucking companies, would be hurt without
Toyota orders. Each day Toyota is down, a state agency calculates, cuts
Japan's annual industrial output by 0.1 percentage point.

Prospects for a quick comeback seemed to dim as the Saturday wore on.
Toyota production officials were dismayed to learn they needed 200 P-valve
variations. And chances that anyone else would quickly take up production
looked distant: The valves have many complex tapered orifices that require
highly customized jigs and drills. The production department told Toyota
President Hiroshi Okuda, who was in the Middle East, that they would close
most plants from Monday until at least Thursday -- the longest suspension
in company history.

Hectic Scene

On Saturday afternoon, Toyota and Aisin summoned officials from some of
the major parts suppliers to a second war room, at Aisin headquarters. It
quickly became a hectic scene, with officials shouting out for copies of
the blueprints of different P-valves while Toyota executives divvied up
valve-making assignments, recalls Osamu Natsume, sales division head at
Toyoda Machine Works. "It was chaos," he says.

Then the parts makers had to assemble the tools, dies, drills and other
fixtures for machining systems that would normally take several months to
perfect. "We had to work, no matter how hard," says Tetsuro Yamakage,
production-engineering manager at Toyoda Machine. He immediately raced to
find the 30 kinds of cutters, knives and special drills needed to make the
valves.

But there still weren't enough suppliers. So Toyota purchasing officials
called more parts makers to a Sunday-afternoon meeting. These officials,
like those that had met on Saturday, were like family-people who work
closely with Toyota from the start of a car's design. "It was crucial
because we knew each other, we knew the face of the people," Mr. Ikebuchi
says.

One familiar face was Masakazu Ishikawa, a former Toyota manager whose
division had designed Toyota P-valves and who now is executive vice
president of Somic Ishikawa Inc., a supplier of brake parts and suspension
ball joints. Mr. Ishikawa called Somic's top production engineers from his
cellular phone on the two-hour ride home from Aisin and asked them to meet
at the office at 8 p.m. Sunday. They stayed there until after midnight to
plot strategy: They would farm out some of their current factory work to
free up machines to make the Toyota parts.

A New Undertaking

At 6 a.m. Monday, Somic's four designers began an eight-stage design
process. "We'd literally never done anything like this before," says Isoo
Suzuki, production-engineering director. Staying up 40 hours, Mr. Suzuki
and his engineers designed jigs. Then they called in some chits from
Somic's chain of suppliers. For example, Somic got a machine-tool maker,
Meiko Machinery Co., to turn down other orders and put 30 workers on
round-the-clock shifts to make the jigs it needed.

Somic drafted technical and administrative staffers to help man the
machines. On Feb. 6, right on schedule, it delivered its first P-valves to
Toyota.

So many suppliers were rushing to please Toyota that they sparked an
unofficial race. Taiho Kogyo Co. would have been first, says Nobuo Fukuma,
a vice president of the bearing maker, if it hadn't had to search
nationwide for special machine tools. Taiho was forced to alter imported
tools, he complains, because "the toolmakers didn't give us priority" and
shipped to bigger parts makers instead. Although Taiho's first batch of 500
P-valves was ready on Thursday, less than a day behind two bigger Toyota
affiliates, Mr. Fukuma was despondent. "We had wanted to be first," he
says.

Adapting a Machine

Others were delighted just to have been called on. Brother Industries
Ltd., which usually makes things like sewing and fax machines, got calls
Sunday night from Aisin and Toyota. A sense of panic at Toyota had inspired
it to go far afield, and Toyota knew Brother had a small machine-tools
unit.

Brother cobbled together a P-valve production line by adapting a
computerized milling machine that usually makes sewing-machine and
typewriter parts. Each valve took Brother 10 minutes to make and five
minutes to inspect -- hardly a cost-effective use of its resources. The
firm helped out, says Yoshihiko Tsuzuki, a general manager, "because it was
an emergency."

Early in the week after the fire, even Toyota's Mr. Ikebuchi had doubts
about the goal of resuming production in all plants by Friday. But the
supplier group came through. Trucks bearing the first 1,000 usable P-valves
rolled in late Wednesday. On Thursday, 3,000 more arrived, and on Friday,
5,000. Slowly, Toyota's assembly lines started up again.

All told, Toyota lost production of 72,000 vehicles. But with overtime
and extra shifts, Toyota officials say, it has already nearly recouped the
lost output.

The Right System

The fire and its aftermath have left Toyota executives convinced that
they have the right balance of efficiency and risk. "Many people say you
might need to scatter production to different suppliers and plants, but
then you have to think of the costs" of setting up expensive milling
machines at each site, Mr. Ikebuchi says. "We relearned that our system
works."

In fact, the fire may have made the system even more efficient. Nisshin
Kogyo Co., which was making the other 1% of Toyota's P-valves, says that
during the crisis it raised production efficiency 30% by speeding up
production.

Mr. Kinoshita says the fire spurred Toyota to begin an effort to trim
the number of its parts variations, a project that should eventually cut
costs. And sole-source suppliers are moving quickly to build fail-safe
mechanisms. Somic, which makes all of Toyota's steering linkages, is
revamping its system so it can easily shift to another site if disaster
strikes.

Suppliers never asked Toyota or Aisin what they would be paid for
rushing out the valves, says Somic's Mr. Ishikawa. "We trusted them."

Indeed, as the first valves arrived at Toyota factories, Aisin told the
suppliers it would pay for everything, from drills and overtime pay to lost
revenue and depreciation. And Toyota promised the suppliers a bonus
totaling about $100 million "as a token of our appreciation," says Mr.
Okuda, its president. He adds that the auto maker will certainly remember
the companies that pitched in during its crisis.